December 1, 2017

Last Wednesday, the Michigan Public Service Commission
(MPSC) finalized a new avoided cost formula that utility Consumers Energy must
use to buy power from independent, qualified facilities (QFs) under the federal
Public Utilities Regulatory Policies Act (PURPA).

Solar advocates say the order will help create the certainty necessary
to spur private investments and new growth in Michigan solar energy, while
ensuring utility customers’ electricity rates don’t increase.

As the MPSC explains, PURPA requires the commission to
establish how much a utility is obligated to pay the owner of a small electric
production or cogeneration facility – such as landfill gas, hydroelectric,
solar, biomass or wind – for the power it produces. The law says the MPSC must
set avoided cost rates that are “just and reasonable to the electric consumer
of the electric utility and in the public interest;” and that do not
“discriminate against qualifying cogeneration and small power production
facilities.”

The avoided cost is how much a utility would have to pay to
produce the energy itself and is the sum of capacity and energy costs. The MPSC
says it has not recalculated avoided costs in almost 30 years, and many
contracts are coming due. In Wednesday’s order, the commission set
Consumers Energy’s specific rates for the next two years, when they will be
reviewed again.

“With the development of regional electricity markets and
the advancement of renewable energy and other fuels used to generate
electricity, the electric industry has undergone significant change since the
commission last updated the payments Consumers Energy must make to small,
independent power producers under PURPA,” says Sally Talberg, chairman of the
MPSC, in a press release. “The commission has approved a payment
structure based on the utility’s updated avoided cost that reflects these
changing market conditions and gives small power producers an opportunity to
compete on a level playing field as required by the federal law.”

Talberg also acknowledges the extensive input provided by
stakeholders throughout this process.

According to the MPSC, the ruling marks a change in the way
avoided cost payments are structured.

Current contracts are based on the costs
of running a coal plant. New contracts will be based on the energy costs
associated with running a natural gas combined cycle plant and capacity costs
based on a natural gas combustion turbine power plant, both of which better
reflect the trend in producing power today, says the MPSC.

Previous MPSC rulings determined the standard offer tariff
is available for QFs with a design capacity of up to 2 MW; before that, only
projects up to 100 kW were eligible. QFs can also now select contract lengths
of five, 10, 15 or 20 years.

“The commission adopted a strong methodology that reflects
the value solar provides to Michigan during peak periods,” says Margrethe
Kearney, senior staff attorney with the Environmental Law & Policy Center
in Grand Rapids, Mich. “This decision makes Michigan more attractive for
renewable energy development at no additional cost to ratepayers.”

Solar industry officials have hailed the announcement,
saying it can help make Michigan a leader in Midwest solar.

“The commission correctly recognized the significant long-term
value of solar to Michigan and the need to update old rules to capture that
value,” says Rick Umoff, director of state affairs for the Solar Energy
Industries Association (SEIA). “Solar companies can now ratchet up investment
in Michigan’s economy, creating well-paying jobs and providing clean reliable
energy to the state.”

“The commission’s decision to enable a level playing field
for clean energy will launch a new wave of solar development in Michigan,” says
Becky Stanfield, senior director of western states at Vote Solar. “Michigan’s
leadership demonstrates to regulators and lawmakers across the country how to
attract private investments, build a clean energy economy, and create local
jobs that can’t be outsourced.”

In the several PURPA proceedings that were initiated in
2016, the MPSC was required to establish accurate and up-to-date avoided
capacity and energy costs for each rate-regulated utility that it oversees. The
commission notes it approved Upper Peninsula Power Co.’s contract prices in September
and still has PURPA cases pending for a number of other utilities.
The Consumers Energy ruling is available here.

According to SEIA, PURPA was enacted in 1978 to encourage
renewable energy development, reduce reliance on fossil fuels and promote
energy independence. Since its inception, PURPA has spurred more than 16 GW of
cumulative capacity across the U.S.